Is Zogenix A Good Stock To Buy Now?

RA Capital Management, led by Peter Kolchinsky, has disclosed a massive new stake in California-based pharmaceutical company Zogenix, Inc (NASDAQ:ZGNX). A new filing with the U.S. Securities and Exchange Commission revealed that RA Capital holds 1.84 million shares of Zogenix, Inc (NASDAQ:ZGNX). The stake represents 7.5% of the company’s common stock, and is passive by nature.

Boston-based RA Capital, founded by Peter Kolchinsky in 2001, focuses on healthcare and life-sciences companies. The fund invests in companies with promising drugs and technologies. It offers private, IPO, and follow-on financing for its portfolio companies to enable management teams to drive value creation without facing capital shortages from inception through product commercialization. RA Capital’s most recent 13F filing showed that the fund manages a public equity portfolio worth $994.11 million.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 118% since then and outperformed the S&P 500 Index by around 60 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

Zogenix Inc (NASDAQ:ZGNX) is a pharmaceutical company engaged in the development of therapies for the treatment of central nervous system (CNS) disorders. The company has a market cap of $257.54 million. Zogenix Inc (NASDAQ:ZGNX) raised $98.33 million in proceeds from a public offering, which was completed in August. The offering included about 5.46 million common shares, with 712,500 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares. The shares were offered at a price of $18.00 a share.

Last month, Zogenix Inc (NASDAQ:ZGNX) announced positive top-line pharmacokinetic results from its phase 1b multi-dose clinical trial of Relday, which is a once-monthly subcutaneous investigational formulation of risperidone, for the treatment of schizophrenia. The company believes that Relday, which is subject to approval, has the potential to be the first subcutaneous antipsychotic product that allows for once-monthly dosing and achieves therapeutic drug levels on the first day of administration. In a statement, Zogenix Inc (NASDAQ:ZGNX) said that the phase 1b multi-dose clinical trial for Relday was conducted as a single-center, open-label, safety and PK trial of 60 patients with chronic, stable schizophrenia or schizoaffective disorder across a dose range of 60, 90 and 120 mg, and included a comparator arm of Risperdal Consta. Zogenix Inc (NASDAQ:ZGNX) is now starting efforts to secure a global strategic development and commercialization partner for Relday.

On the next page, we’ll talk about the company’s stock and its financial performance.

Shares of Zogenix Inc (NASDAQ:ZGNX) have dropped by nearly 37% during the last 30 days, which may have provided the perfect impetus for Kolchinsky to take up his sizable position. However, the stock shows a notable growth of 21.46% year-to-date.

For the second quarter, Zogenix Inc (NASDAQ:ZGNX) reported revenue of $7.4 million, up from $6.7 million in the same quarter last year. The company spent $6.2 million on research and development during the quarter, representing a significant increase from $3.2 million in the second quarter a year ago. Zogenix Inc (NASDAQ:ZGNX) posted a loss from continuing operations of $6.7 million, versus income of $77.5 million in the same quarter of 2014. Net income, including discontinued operations, was $72.5 million, or $3.78 per share, up from income of $62.9 million, or $3.59 per share, for the same quarter a year ago.

During the second quarter, the total number of hedge funds among those that we track holding Zogenix Inc (NASDAQ:ZGNX) rose to 15 at the end of June from 14 at the end of the first quarter, while the aggregate value of their investments increased to $65.25 million compared to $40.10 million held in shares at the end of the first quarter.

Other shareholders that see value in Zogenix Inc (NASDAQ:ZGNX) include Kevin Kotler’s Broadfin Capital, and Baker Bros. Advisors, led by Julian Baker and Felix Baker. Broadfin Capital holds 10.74 million shares, while Baker Bros. owns 10.03 million shares of the company as of June 30.

Disclosure: None